Mediofactoring v. McDermott (In re Connolly North America, LLC)

(Sixth Circuit, Sep. 21, 2015)

The Sixth Circuit reverses the bankruptcy court and district court, holding that a creditor making a substantial contribution in a Chapter 7 case may be awarded an administrative expense claim. Section 503(b) expressly provides that creditors making substantial contributions in Chapter 9 cases and Chapter 11 cases may be awarded an administrative expense claim. The lower courts held that this necessarily excludes such claims in Chapter 7 cases. The Sixth Circuit holds that because 503(b)’s list is not exclusive (the list is preceded by the word “including”), a creditor in a Chapter 7 case case may be awarded an administrative expense claim for making a substantial contribution. Opinion below.

2015-09-21 – in re connolly north america

Author: Matt Lindblom

In re Schwartz

(7th Cir. Aug. 24, 2015)

The Seventh Circuit affirms the dismissal of the debtors’ chapter 7 petition for cause under 11 U.S.C. § 707(a). The movant had obtained a large arbitration award against the debtors and the debtors failed to make an effort to pay the award. They continued incurring monthly living expenses of $11,100 with monthly income of $9,500. The court finds that “cause” under § 707(a) is not restricted to the three procedural defects listed in that section. Cause existed here because the debtors failed to make any effort to pay creditors when they had the means to do so. “What the Schwartzes failed to do was pay as much of their indebtedness as they could without hardship. Their action was deliberate and selfish, and provides good cause for denying the discharge.” Opinion below.

2015-08-24 – in re schwartz

Author: Matt Lindblom

Bank of America, N.A. v. Caulkett

(U.S. Sup. Ct. June 1, 2015)

The Supreme Court holds that a Chapter 7 debtor may not void a junior mortgage lien when the senior lien exceeds the value of the collateral. The Court recognizes that 11 U.S.C. § 506(a)(1) provides that an allowed claim is only a secured claim to the extent of the value of such creditor’s interest in the collateral. Section 506(d) provides that to the extent a lien secures a claim that is not an allowed secured claim, it is void. The Court suggests that the Code could be interpreted such that § 506(d) would allow the voiding of the junior mortgage lien, if not for the Court’s prior decision in Dewsnup v. Timm, 502 U.S. 410 (1992). There, the Court held that for purposes of § 506(d) a claim is a secured claim regardless of whether the collateral value is less than the lien amount. Thus, Dewsnup controls here and the debtors are not permitted to void the junior mortgages. Opinion below.

2015-06-01 – bank of america v caulkett

Author: Matt Lindblom

Harris v. Viegelahn

(U.S. Sup. Ct. May 18, 2015)

The Supreme Court holds that post-petition debtor wages held by the Chapter 13 trustee after the debtor converts to Chapter 7 should be returned to the debtor rather than distributed to creditors in accordance with the Chapter 13 plan. There was a split on this issue between the Fifth and Third Circuits, with the Fifth Circuit holding the funds were properly distributed to creditors under the plan following conversion. So long as the debtor does not convert to Chapter 7 in bad faith, such funds should be returned to the debtor. Opinion below.

2015-05-18 – harris v viegelahn

Author: Matt Lindblom

Sexton v. PHEAA (In re Sexton)

(Bankr. W.D. Ky. Nov. 24, 2014)

The bankruptcy court denies the chapter 7 debtor’s motion seeking an order declaring a student loan debt dischargeable. The court applies the three-part Brunner test and determines that excepting the student loan debt from discharge would not cause an undue hardship. The debtor could not show inability to maintain a minimal standard of living while repaying the loan, as he was paying private school tuition for his children and had an average monthly telephone/cable bill of $600 per month. The debtor also could not show that his future income was not likely to improve, as he had just started a law practice and did not establish that he had otherwise made significant efforts at finding employment. Finally, the debtor’s repayment history showed lack of a good faith effort to repay the loan. Thus, the debt remains nondischargeable. Opinion below.

2014-11-24 – sexton v pheaa

In re Baham

(Bankr. W.D. Ky. Nov. 18, 2014)

The bankruptcy court grants the chapter 7 debtors’ motion to avoid judicial liens on a parcel of real property. After an evidentiary hearing, the court finds that the debtor’s appraisal is too low, because it included an inappropriate depreciation deduction, and finds that the appraisal obtained by the bank (one of the judicial lienholders) is too high, because it did not take into account the unfinished nature of the improvements. The court sets a value for the property, applies the Sixth Circuit’s calculations set forth in Brinley, and holds that the judicial liens are avoided pursuant to § 522(f) to the extent they impair the debtors’ exemption in the property. Opinion below.

2014-11-18 – in re baham

Roberts v. Kleven

(N.D. Ind Nov. 14, 2014)

The district court affirms the bankruptcy court’s decision to revoke the debtor’s discharge pursuant to § 727(d)(1), (2), and (3). The debtor obtained a tax refund and transferred the bulk of it ($6,400) from her bank account to a relative’s account in the days leading up to the filing of her chapter 7 petition. The refund and transfer were not disclosed to the trustee. The trustee repeatedly requested copies of her bank account statement for the three months leading up to the bankruptcy, among other documents, but the debtor refused to produce the documents despite entry of an agreed order compelling their production more than a year after the 341 meeting. The documents were eventually produced before trial. The district court held the bankruptcy court’s order revoking the discharge was appropriate—the debtor failed to comply with a court order, fraudulently obtained her discharge, and fraudulently failed to report property of the estate. Opinion below.

2014-11-14 – roberts v kleven